Dealer-customer mandatory arbitration works

By Jim Hudson
August 25, 2008

Mandatory arbitration is an invaluable tool that many auto dealers, including me, use to settle disputes related to auto sales.

The consumer and dealer resolve their issues through an appointed, unbiased arbitrator without the expenses, delays and complications of the court system. If a consumer rejects the mandatory-arbitration clause in a sales contract, the dealer may choose a different style of agreement, or the consumer may choose to do business with another dealer.

In countless situations, arbitration has saved me and my customers time, money and courtroom-induced headaches. Undoubtedly, many other dealers have enjoyed the same benefits. But now, auto dealers' right to include binding-arbitration provisions in sale and lease contracts is under attack from Congress.

The Automobile Arbitration Fairness Act of 2008 (H.R. 5312) seeks to ban predispute arbitration agreements from the auto sales and leasing process. On July 15, the bill passed from the House Subcommittee on Commercial and Administrative Law to the House Judiciary Committee. If it becomes law, it will ban mandatory-arbitration provisions in sales and lease agreements between dealers and consumers. Neither party will benefit.

That would be particularly devastating to auto dealers, who rely on mandatory arbitration as an effective, affordable and efficient means to resolve disputes.

Consumers want a quick and simple settlement when a dispute centers on their day-to-day transportation. Dealers and small-business owners can all agree that this legislation is the most potentially harmful issue facing dealers in the U.S. Congress.

Reasons for opposition

The American International Automobile Dealers Association and its members recognize that this legislation stems from the 2002 debate between dealers and manufacturers over arbitration clauses in franchise contracts.

Because of the complex relationship between dealers and their manufacturers, mandated arbitration was not the best method to resolve disputes. Therefore, when Congress passed legislation that allowed dealers to use means other than arbitration to resolve conflicts with manufacturers, we felt it met the needs of both parties.

On the other hand, we oppose the ban on mandatory arbitration between auto dealers and consumers for a number of reasons.

-- First, without arbitration clauses in sales and lease contracts, the car-buying process will be more complicated. It will expose dealers to lawsuits and clog our already-overburdened legal system.

-- Second, arbitration minimizes protracted, expensive legal battles and provides consumers with relatively quick settlements.

-- Further, I believe anti-arbitration legislation functions primarily as a gift from its proponents in Congress to the powerful Trial Lawyers Association, representing the only group that benefits from a ban on mandatory arbitration.

AIADA takes this issue seriously and is fighting back by ensuring that members of Congress are fully educated on the detrimental impact this legislation could have on the auto industry.

Cheaper, more effective

AIADA and its members are leading the way in opposing the attempt to ban mandatory arbitration, and we are doing everything we can to stop the momentum.

We are 11,000 franchises strong, and there is power in our numbers, but we must also ensure that Congress knows how this legislation would negatively affect our businesses.

Fortunately, we have been joined by three national auto associations and 30 state and metro dealer associations in opposition to H.R. 5312. Countless dealers have written to and met with their elected officials.

This issue will not go away soon; I suspect it will be front and center in the next Congress.

We have all seen mandatory arbitration work. As a method of resolving the relatively small disputes that arise between dealers and consumers, arbitration delivers high satisfaction rates for both parties.

According to studies by Ernst & Young, Harris Interactive and Roper Starch, 79 percent of all arbitrations are resolved in consumers' favor, and 75 percent of consumers found the arbitration process fair and just.

In addition, the arbitration process costs only 25 percent as much as a lawsuit, and 82 percent of adults said they would choose arbitration knowing its cost-effectiveness.

Mandatory arbitration between consumers and auto dealers is one of the most effective forms of dispute resolution.

Do you want Congress to make it extinct?